9.	Royalty Arrangement with Bristol Myers Squibb Company (“Bristol”)

In 2008, the Company together with the University of Michigan entered into a settlement agreement with Bristol related to alleged patent infringement of a certain patent related to the treatment of rheumatoid arthritis. The settlement provides for Bristol to pay royalties on the United States net sales of Orencia^® for any clinical indication at a rate of 1.8% for the first $500 million of annual net sales, 2.0% for the next $500 million of annual net sales and 4% of annual net sales in excess of $1 billion for each year from January 1, 2008 until December 31, 2013.

Pursuant to the Bristol Settlement, the Company recognized royalty revenue of $14,753,000 for the year ended December 31, 2012, $8,769,000 and $7,739,000 for the nine-month fiscal year ended December 31, 2011 and the nine-month period ended December 31, 2010, respectively, and $10,251,000 for the fiscal year ended March 31, 2011.

The Company must also remit to the University of Michigan 15% of all royalty revenue received from Bristol. Royalty expense was $2,213,000 for the year ended December 31, 2012, $1,315,000 and $1,161,000 for the nine-month fiscal year ended December 31, 2011 and the nine-month period ended December 31, 2010, respectively, and $1,537,000 for the fiscal year ended March 31, 2011. Royalty expense is included on the statements of operations under the line item “Cost of royalty and other revenue.”